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Niwot-based Crocs laying off more than 180, closing stores in major restructuring

By Alicia Wallace, Camera Business Writer

Posted:
07/21/2014 06:31:51 PM MDT

Updated:
07/22/2014 07:56:19 AM MDT

Nik Lima, a Croc's retail employee, prices pRepair clogs while readying for the opening of the Croc's store on the Pearl Street Mall in Boulder in 2010. (Mark Leffingwell / Daily Camera )

Crocs Inc., the Niwot-based shoemaker known for its colorful clogs, on Monday evening announced "strategic performance improvement initiatives" that are expected to result in the elimination of more than 180 jobs, the closure of retail stores and the scrapping of brands in its product line.

The restructuring plans — which Crocs officials said will put the global shoemaker in a stronger position — coincided with the release of the company's second-quarter earnings. During the most recent three-month period, Crocs reported a net income of $19.5 million, or 19 cents per share on revenue of $376.92 million as compared to income of $35.36 million, or 40 cents per share, on revenue of $363.83 million during the second quarter of last year.

"We have identified the key strategic and structural improvements that we expect will allow the company to achieve its potential," Andrew Rees, Crocs' president, said in a statement included in the announcement. "We have a clear, well-defined strategy for addressing these issues and improving performance. Work is underway already to drive significant change throughout our company in four key areas."

The four areas outlined by Crocs are: streamlining the global product and marketing portfolio, reducing direct investment in smaller geographic markets, creating a more efficient organizational structure and closing or converting 75 to 100 Crocs-branded retail stores. Crocs has 624 stores worldwide; no stores in Colorado are expected to close or be converted to a third-party operator, Crocs officials told the Daily Camera.

As a result of the store closures, Crocs officials said, annual revenue will be reduced by $35 million to $50 million. Revenue in 2014 and 2015 are expected to be affected by the store closures with growth resuming in 2016.

In an interview with the Camera, Rees said that while Crocs has been through various cycles in the past, the company is at a better starting point now.

"We're at a high water mark; we're not declining, we're growing (revenue), but we need to convert more of that revenue into profit," Rees said, adding that the cost structure got out of line. "It's a key lever to be able to free up the resources to be able to do the things we need to do to be able to grow."

Those efforts include reining in a product line that strayed in breadth during the past two years, he said, adding that the focus will be on a core set of products including the clogs and casual shoes such as sandals and wedges.

Operational changes are expected to include prioritizing direct investment in larger markets and "reducing structural complexity, size and cost" via job eliminations. Crocs eliminated 183 positions — including 70 positions and planned positions in Niwot — as part of the reorganization, company officials said.

As a result of the layoffs and eliminated positions, Crocs will have about 350 to 370 employees locally.

The layoffs are expected to result in an annual cost savings of $4 million this year and $10 million next year, Crocs officials said.

Crocs also plans to open a Global Commercial Center in Boston later this year to house key merchandising, marketing and retail functions. Fifty to 75 employees are expected to be based in the Boston center over time and include some who "may relocate from Niwot," officials said in the release.

Crocs is establishing the Boston office as a means of attracting employees with expertise in footwear and retail management, officials said. Crocs has no intention of moving its headquarters or bulk of operations from Boulder County, Rees said.

About 25 to 30 people locally are expected to be offered the option to relocate to the Boston office, Rees said. Employees who are unable to move would be offered a compensation package, Rees said, adding those decisions would be determined on an individual basis.

The initiatives represent "the next stage of a Crocs transformation" that began with Blackstone Group LP's $200 million investment at the end of 2013, officials said.

"This is not a crisis," Rees told the Camera. "This is an adjustment to our strategy so that we can be more successful."

As of Dec. 31, 2013, Crocs (Nasdaq: CROX, $14.84) had about 5,000 employees worldwide. Crocs had nearly 450 full- and part-time employees in Boulder County, according to figures provided by the company last year.

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